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Will Turkey Revive its Reform Agenda?

Posted December 13th, 2016 at 10:40 am (UTC-5)

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By Babak Yektafar

Istanbul’s well known Istiklal (independence) Street often provides a glimpse into the Turkish national mood. Through national celebrations and mourning, protests and counter-protests, nightlife and daily activities, this mostly pedestrian street, a vital artery in the city’s social and commercial life, offers an unofficial barometer to gauge the Turkish disposition.

While large crowds of Turks and visitors continue to populate the main drag and its infinite maze-like side alleys, known as sokak, there was a noticeable drop in the vigor that usually generates its exciting and colorful ambiance. The number of closed businesses, visibly up since the coup attempt on July 15, was certainly a contributing factor to the depleted mood.

Most Turks we encountered both in Istanbul and the capital city of Ankara are of the opinion that Turkey’s $720 billion dollar economy is in peril. External and internal events of the past 15 months leading to a precarious security situation has battered the country’s tourism industry and negatively impacted the investment environment, including the much relied upon foreign direct investment (FDI). The contentious negotiations around membership in the European Union (EU), Turkey’s largest trading partner, has raised concern among Turkish exporters and importers.

According to some Turkish colleagues in the private sector, and confirmed in various reports, the depreciation of Turkish Lira against the dollar (over 6 percent in 2016) has caused Turkish private enterprise to incur about $25 billion in losses this year. Turkish colleagues are now keeping a watchful and worried eye on the country’s construction sector. Most believe that a burst in the construction bubble will send the economy spiraling down an unknown abyss and those with means are seriously considering a move abroad.

A once dynamic society surrounded by unstable neighbors, which benefited from a set of progressive economic, social, and political reforms over the past decade and was ready to assume a leading role on the global stage, Turkey is now visibly going through one of its most challenging periods in the republic’s history. The strain is all too obvious even among the otherwise cheerful peddlers of Istiklal Street.

A colleague in Ankara stressed that the attempted coup this summer added to the discernible strain on the Turkish psyche that has led to a collective numbness, shock, and depression. According to this colleague, in Turkey the state has been a sacred institution since the establishment of the republic by the late Mustapha Kemal, adoringly referred to as Ataturk, and has stood above any individual and their individual rights. The events of July 15 were a direct assault on this sacred institution and Turks are still trying to recover from this assault, and absorb the implications for their individual rights.

Yet others have a more optimistic view of Turkey’s future. They contend that this is yet another phase in Turkey’s development and that Turkish history is filled with tumultuous periods through which the nation emerged with its core values intact. One academic in Ankara noted that Turkey is going through a needed transition and that the attempted coup only highlighted the weakness of Turkish institutions.

There exists a prevailing view among this group that the likelihood of Turkey harboring an authoritarian regime dispensing with popular reforms is minimal. This group argues that unlike most authoritarian regimes whose power relies on the wealth generated by their respective country’s natural resources, Turkey has few natural resources and is wholly reliant on its diverse external relations to guarantee a steady flow of revenue. In Turkey, they also believe that secularism and economic well-being still outweigh the kind of ideology that President Erdogan and his supporters are accused of forcing on Turkish identity. In fact, a number of people – some affiliated with government agencies and some within the Turkish private sector – noted that the government of President Erdogan has already engaged the private sector and is considering incentive-laden reform packages on manufacturing, investment, import/export, and the country’s inadequate tax code.

However, for some, these reforms packages do not address the most urgent challenges facing Turkey. For example, while unemployment has increased to above 11 percent, the more alarming number according to Organization for Economic Cooperation and Development (OECD) is that 28 percent of eligible workers between the ages of 15-29 are neither employed nor are they in any educational or training programs. With its large young population and the many extremist pockets in and around Turkey vying for recruitment of young members, these numbers paint a disturbing picture and a challenge to Turkey.

A number of Turkish colleagues insisted that beyond commitment to reforms, the government needs to do more to encourage entrepreneurship and improve the entrepreneurial culture and ecosystem as a way of addressing youth unemployment. According to a Turkish colleague, despite the growth of entrepreneurship in recent years, entrepreneurs are still regarded as “thieves” in Turkey, or rather people who angle for a large fortune without resorting to honest work.

Furthermore, the entrepreneurial ecosystem is not conducive to developing an entrepreneurial spirit. For example, according to this colleague, part of entrepreneurial success is based on the risk-taking spirit and urgency of stakeholders involved with startup enterprises. Yet most incubators for startups in Turkey, which are key components of an entrepreneurial ecosystem, are housed in universities and are staffed with university employees who are financially less motivated than an average entrepreneur since they earn university salaries. This colleague concluded that the government and Turkish civil society have an enormous task ahead to develop a nurturing and inclusive enterprise ecosystem to put Turkey back on the path of sustainable growth.

For many Turks there are a number of upcoming milestones that will have a strong bearing on the stability and future direction of the republic, including the government’s decision to continue or discontinue the existing state of emergency enacted after the failed coup attempt; the upcoming vote on a constitutional amendment to change the country’s system of governance; the adoption of the death penalty; and the talks on a settlement over Cyprus. Moreover, decisions regarding these latter two milestones could impact any potential attempt by Turkey to join the EU.

Regardless, what most agree on is that the events of July 15 provided a unique opportunity for the country’s leadership to unite this fractured country and that Turkey now can ill afford to forgo its commitment to the social, political, and most notably economic reforms that can once again revitalize the famed Istiklal Street.

Babak Yektafar is the Senior Program Officer, Middle East & North Africa, Center for International Private Enterprise.